The dollar strengthened against European currencies on Wednesday ahead of a highly anticipated reading on U.S. inflation, also boosted by a Reuters report that China is considering allowing a weaker currency next year, which has caused the yuan and other Asian currencies to weaken

The euro was last down 0.18% at $1.0508, a day before a European Central Bank meeting, and the pound fell 0.16% to $1.2752 as traders awaited U.S. CPI data, due at 1330 GMT.

Economists expect headline and core consumer prices to rise 0.3% in November from previous increases of 0.2% and 0.3%, respectively.

Traders are currently pricing in an 85% chance of a quarter-point rate cut by the Fed on Dec. 18, but a higher-than-expected reading could upset these expectations, and concerns about that supported the dollar on Wednesday.

"The market is thinking 'what if the CPI report is strong?' and then some Fed easing expectations could be priced in which would support the dollar," said Jane Foley, head of FX strategy at Rabobank in London.

The dollar was also affected by the fact that China's top leaders and policymakers are considering letting the yuan weaken in 2025 as they brace for higher trade tariffs in Donald Trump's second term as president in the United States.

The bigger move on the news, of course, was in Asia. The dollar jumped against the yuan, and was last up 0.24% against the offshore unit at 7.2780 and 0.23% higher against the onshore currency at 7.2491.

Source: Investing.com